Home  BADM449  Handout #15 Joseph T. Mahoney

College of Business
Department of Business Administration
BADM449  Strategic Management/Business Policy

Strategic Management Notes

Providing purpose is an important function of the executive.

One important purpose is to create value.

Value creation can lead to sustainable competitive advantage.

Generating value can be accomplished through the revenue drivers, the cost drivers and the risk drivers of the business.

Strategies to generate value include:

(1) Positioning;
(2) Resources and Capabilities; and
(3) Organizational Structure

(1) Positioning

Key issue: Magnitude and timing of sunk cost investments.

(a) First-mover Advantages
(b) Second-mover Advantages

(a) First-Mover Advantages (e.g., Nucor, Walmart)

  • Early entry with sunk cost investments PREEMPT competitors.
  • "Exit barriers are entry barriers"

(b) Second-Mover Advantages (e.g., Boeing)

  • With high demand uncertainty and the potential for learning coupled with the ability to move quickly when this information is gained suggests the value of strategic flexibility.

Strategic coherence requires a balance between commitment (i.e., sunk cost investments) and flexibility (i.e., strategic options).

(2) Resources and Capabilities (e.g., Wal-mart)

  • Hub-and-spoke system
  • JIT to replace stock twice a week
  • Point-of-sale ordering and distribution
  • Information technology management
  • Human resource management

(3) Organizational Structuring (e.g., Nucor, Wal-mart)

  • Sophisticated incentive systems
  • Excellent communication flows
  • Training of managers
  • Strong cultures

Strategy implementation (via incentives, communication flows, and cultural norms) should be coherent with purpose.

Alfred P. Sloan in his book "My Years with General Motors" ends by saying that:

"It has been the thesis of this book that good management rests on the reconciliation of centralization and decentralization ..." (p. 429)

Perhaps, even more generally, the primary managerial problems are those of coordination and adaptation.

Authority, cultural norms, and the price system must be used in a delicate balance to achieve this coordination.

Strategic coherence among Positioning, Resources & Capabilities, and Organizational Structure are difficult to imitate and are the source of sustainable competitive advantage.

  • In the Wal-mart case, we see that complex systems where continuous learning can be facilitated are the primary source of sustainable competitive advantage.

  • The head of planning for Royal Dutch Shell recently put it this way:

    "The ability to learn faster than your competitors [a learning organization] may be the only sustainable competitive advantage."

We must conclude along with Chester Barnard (1938) that systems thinking is at the heart of management. "Organizations are systems ...." (1938, p. 77).

Four points to be made:

  1. Systems often cause their own crisis, not external forces, or individual mistakes.

  2. People often have potential leverage to improve the system as they learn how they influence the system.

  3. Experimentation is very important in complex systems in order to facilitate learning -- consider Toyota's "trial-and-error" approach to continuous improvement.

  4. Collaborative learning is often critical because the cooperation of different people may culminate in results of the utmost importance.

The executive functions:

  1. Provide a system of communication;
  2. Maintain the willingness to cooperate;
  3. Ensure the continuing integrity of organization purpose; and
  4. (d) Provide leadership: the personal capacity for affirming decisions that lend quality and morality to the coordination of organized activity and to the formation of purpose.

Importance of Responsibility:

  • It is not merely experience of the world which changes and develops executives, but still more the practice of deciding and acting under the burden of responsibility for the consequences.

Importance of Effective Leadership:

  • Leadership qualities seem to be connected with knowing whom to believe, with accepting the right suggestions, and with selecting appropriate occasions and times.

  • High ideals are a matter of observation:

  • "Old men [and old women] plant trees."

In short, Barnard's message is that management matters a great deal. Intellectual acceptance of this proposition is not enough. Emotional acceptance of a moral commitment is required if one is to achieve fully one's calling to carry the burdens of responsibility and the "functions of the executive."